Tag: functions of money

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Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Money is a standard of deferred payments. This means that:

  1. Future transactions can be settled In terms of money

  2. Loans given and repayments thereof can be established in terms of money

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

As a standard of deferred payments, money allows for the settlement of future obligations and the formalization of credit and loan agreements.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Which of the following will not be included under Narrow Money?

  1. Currency in circulation

  2. Demand Deposits

  3. Time Deposits

  4. All of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Narrow Money (M1) includes currency in circulation and demand deposits. Time deposits are considered less liquid and are included in broader measures like M3.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

As per RBI's new classification, which of the following measures of Money Stock includes Time Deposits with Banks?

  1. M1

  2. M2

  3. M3

  4. Both (b) and (c)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

M3 is defined as M1 plus time deposits. M2 is defined as M1 plus savings deposits with post office savings banks. Since the question asks for measures including time deposits, both M2 and M3 are often associated with broader definitions, though M3 is the primary one.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

The basic distinction between narrow and broad money is the __________.

  1. treatment of post office deposits

  2. treatment of time deposits of banks

  3. treatment of savings deposits of banks

  4. treatment of currency
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The basic distinction between the measurements of narrow and broad money is the treatment of time deposits of banks.
$\text{Broad money = Narrow money + Time deposits}$

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Which of the following is not a necessary characteristic of money?

  1. It is a unit of account

  2. It is a store of value

  3. It is of intrinsic value

  4. It is generally acceptable
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Money does not require intrinsic value (like gold or silver) to function; its value is derived from general acceptability and its role as a medium of exchange (fiat money).

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

A vital function of money is its ability to provide a standard for __________.

  1. difference in consumer's goods

  2. marginal utility

  3. deferred payments

  4. consumer's preference
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The ability to express future debts and contracts in a common unit is the definition of money serving as a standard for deferred payments.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Money is said to be neutral when ______________.

  1. changes in money supply do not have any effect on real sector

  2. changes in money supply leads to increase in national income

  3. changes in money supply lead to decrease in national income

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The neutrality of money theory suggests that changes in the money supply only affect nominal variables like prices, not real variables like output or employment.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Which of the following is the important function of money?

  1. Money must be legal lender

  2. Money must facilitate exchange if it is to fulfill its purpose

  3. A government must exist for money to exist

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The most important function of money is to facilitate exchange - it acts as a medium of exchange, eliminating the need for barter and allowing transactions to occur efficiently. Option A is incorrect (typo for 'legal tender'). Option C is incorrect - money can exist without government (historically, private banks issued money). Money's core purpose is enabling exchange, which is what option B correctly states.